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By

M    
Assistant Professor & Kidevices Chair

  

  

  
 

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Amreli-365 601 GJ
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 Y

2 reconcer Sarla Achuthan, B K School of Business Management, Krunal Patel, Cadila

Health care Limited, Brig. L N Joshi, Narmada College Of Management, Diwakar Singh,
Global 2nformation Systems Technology Private Limited, Ravi Vaidya, Luthra 2nstitute of
Management, D R Bhatt, Gujarat Alkalis & Chemicals Limited, Avani Desai, G L S Center
for Management Excellence, Sanjeev Kumar, Foundation for peace and Sustainable
Development, Amit N Patel, MBA College, Visnagar, Kasim Patel Agakhan Educational
Services 2ndia, Romit Chaterji, Tata Services Limited, Manisha S Bhatt, Sardar Patel
Commerce College, Ashish Gadekar, G2DC Rofel 2nstitute of Management Studies, S S
Bhatkar, Prestige 2nstitute of Management Gwalior, N N Patel Anand 2nstitute of
Management, R J Bhatt, Bhavnagar University, Om Prakash K Gupta, A2MS 2nternational
Founder, Satendra Kumar, VNS Gujarat University, R P Patel, S P University, Kanak
Upadhyay, Union Bank of 2ndia, J N Chaudhury, People's 2nstitute of Management &
research, Nitin Kiran, National technology Foundation, Prashant Singh Kutaula, River
learn Education for research coad juvancy. Y

 
 Y

2n general, the financial market divided into two parts, Money market and capital
market. Securities market is an important, organized capital market where transaction of
capital is facilitated by means of direct financing using securities as a commodity.
Securities market can be divided into a primary market and secondary market. Y

"À"#À"$% Y

The primary market is an intermittent and discrete market where the initially listed
shares are traded first time, changing hands from the listed company to the investors. 2t
refers to the process through which the companies, the issuers of stocks, acquire capital
by offering their stocks to investors who supply the capital. 2n other words primary
market is that part of the capital markets that deals with the issuance of new securities.
Companies, governments or public sector institutions can obtain funding through the
sale of a new stock or bond issue. This is typically done through a syndicate of securities
dealers. The process of selling new issues to investors is called underwriting. 2n the case
of a new stock issue, this sale is called an initial public offering (2PO). Dealers earn a
commission that is built into the price of the security offering, though it can be found in
the prospectus.

%c&MÀ"#À"$% Y

The secondary market is an on-going market, which is equipped and organized with a
place, facilities and other resources required for tradin g securities after their initial
offering. 2t refers to a specific place where securities transaction among many and
unspecified persons is carried out through intermediation of the securities firms, i.e., a
licensed broker, and the exchanges, a specialized trading organization, in accordance
with the rules and regulations established by the exchanges. Y

A bit about history of stock exchange they say it was under a tree that it all started in
1875.Bombay Stock Exchange (BSE) was the major exchange in 2ndia till 1994.National
Stock Exchange (NSE) started operations in 1994. Y

NSE was floated by major banks and financial institutions. 2t came as a result of Harshad
Mehta scam of 1992. Contrary to popular belief the scam was more of a banking scam
than a stock market scam. The old methods of trading in BSE were people assembling on
what as called a ring in the BSE building. They had a unique sign language to
communicate apart from all the shouting. 2nvestors weren't allowed access and the
system was opaque and misused by brokers. The shares were in physical form and
prone to duplication and fraud. Y

NSE was the first to introduce electronic screen based trading. BSE was forced to follow
suit. The present day trading platform is transparent and gives investors prices o n a real
time basis. With the introduction of depository and mandatory dematerialization of
shares chances of fraud reduced further. The trading screen gives you top 5 buy and sell
quotes on every scrip. Y

A typical trading day starts at 10 ending at 3.30. Monday to Friday. BSE has 30 stocks
which make up the Sensex .NSE has 50 stocks in its index called Nifty. F22 s Banks,
financial institutions mutual funds are biggest players in the market. Then there are the
retail investors and speculators. The last ones are the ones who follow the market
morning to evening; Market can be very addictive like blogging though stakes are higher
in the former. Y

c"'&c &MÀ&c$À"$%Y

The origin of the stock market in 2ndia goes back to the end of the eighteenth century
when long-term negotiable securities were first issued. However, for all practical
purposes, the real beginning occurred in the middle of the nineteenth century after the
enactment of the companies Act in 1850, which introduced the features of limited
liability and generated investor interest in corporate securities. Y

An important early event in the development of the stock market in 2ndia was the
formation of the native share and  
(
 'Association at Bombay in 1875, the
precursor of the present day Bombay Stock Exchange. This was followed by the
formation of associations/exchanges in Ahmedabad (1894), Calcutta (1908), and Madras
(1937). 2n addition, a large number of ephemeral exchanges emerged mainly in buoyant
periods to recede into oblivion duri ng depressing times subsequently. Y

Stock exchanges are intricacy inter-woven in the fabric of a nation's economic life.
Without a stock exchange, the saving of the community- the sinews of economic
progress and productive efficiency- would remain underutilized. The task of mobilization
and allocation of savings could be attempted in the old days by a much less specialized
institution than the stock exchanges. But as business and industry expanded and the
economy assumed more complex nature, the need for 'ÿ
 
  

' arose.
Entrepreneurs needed money for long term whereas investors demanded liquidity ± the
facility to convert their investment into cash at any given time. The answer was a ready
market for investments and this was how the stock exchange came into being. Y
Stock exchange means any body of individuals, whether incorporated or not, constituted
for the purpose of regulating or controlling the business of buying, selling or dealing in
securities. These securities include:

(i) Shares, scrip, stocks, bonds, debentures stock or other marketable securities of a like
nature in or of any incorporated company or other body corporate;

(ii) Government securities; and

(iii) Rights or interest in securities. Y

The Bombay Stock Exchange (BSE) and the National Stock Exchange of 2ndia Ltd (NSE)
are the two primary exchanges in 2ndia. 2n addition, there are 22 Regional Stock
Exchanges. However, the BSE and NSE have established themselves as the two leading
exchanges and account for about 80 per cent of the equ ity volume traded in 2ndia. The
NSE and BSE are equal in size in terms of daily traded volume. The average daily
turnover at the exchanges has increased from Rs 851 crore in 1997 -98 to Rs 1,284 crore
in 1998-99 and further to Rs 2,273 crore in 1999 -2000 (April - August 1999). NSE has
around 1500 shares listed with a total market capitalization of around Rs 9, 21,500
crore.Y

The BSE has over 6000 stocks listed and has a market capitalization of around Rs 9,
68,000 crore. Most key stocks are traded on both the exchanges and hence the investor
could buy them on either exchange. Both exchanges have a different settlement cycle,
which allows investors to shift their positions on the bourses. The primary index of BSE
is BSE Sensex comprising 30 stocks. NSE has the S&P NSE 50 2ndex (Nifty) which
consists of fifty stocks. The BSE Sensex is the older and more widely followed index. Y

Both these indices are calculated on the basis of market capitalization and contain the
heavily traded shares from key sectors. 
 
 


    
  Both the exchanges have switched over from the open outcry trading system
to a fully automated computerized mode of trading known as BOLT (BSE on Line
Trading) and NEAT (National Exchange Automated Trading) System. Y

2t facilitates more efficient processing, automatic order matching, faster execution of

trades and transparency; the scrip's traded on the BSE have been classified into 'A', 'B1',
'B2', 'C', 'F' and 'Z' groups. The 'A' group shares represent those, which ar e in the carry
forward system ‰  ). The 'F' group represents the debt market (fixed income
securities) segment. The 'Z' group scrip's are the blacklisted companies. The 'C' group
covers the odd lot securities in 'A', 'B1' & 'B2' groups and Rights renunc iations. The key
regulator governing Stock Exchanges, Brokers, Depositories, Depository participants,
Mutual Funds, F22s and other participants in 2ndian secondary and primary market is the
Securities and Exchange Board of 2ndia (SEB2) Ltd. Y


*  
%
 
 Y

Do you know that the world's foremost marketplace New York Stock Exchange (NYSE),
started its trading under a tree (now known as 68 Wall Street) over 200 years ago?
Similarly, 2ndia's premier stock exchange Bombay Stock Exchange (BSE) can also trace
back its origin to as far as 125 years when it started as a voluntary non -profit making
association. Y

News on the stock market appears in different media every day. You hear about it any
time it reaches a new high or a new low, and you also hear about it daily i n statements
like 'The BSE Sensitive 2ndex rose 5% today'. Obviously, stocks and stock markets are
important. Stocks of public limited companies are bought and sold at a stock exchange.
But what really are stock exchanges? Known also as the stock market or bourse, a stock
exchange is an organized marketplace for securities (like stocks, bonds, options)
featured by the centralization of supply and demand for the transaction of orders by
member brokers, for institutional and individual investors.

The exchange makes buying and selling easy. For example, you don't have to actually go
to a stock exchange, say, BSE - you can contact a broker, who does business with the
BSE, and he or she will buy or sell your stock on your behalf. Y

 
 
 Y

%


   Y

Electronic trading eliminates the need for physical trading floors. Brokers can trade from
their offices, using fully automated screen-based processes. Their workstations are
connected to a Stock Exchange's central computer via satellite using Very Small
Aperture Terminus ‰À). The orders placed by brokers reach the Exchange's central
computer and are matched electronically.Y

%
 
 Y

The Stock Exchange, Mumbai ‰ %) and the National Stock Exchange ‰&%) are the
country's two leading Exchanges. There are 20 other regional Exchanges, connected via
the 2nter-Connected Stock Exchange ‰%). The BSE and NSE allow nationwide trading
via their VSAT systems.Y


Y

An 2ndex is a comprehensive measure of market trends, intended for investors who are
concerned with general stock market price movements. An 2ndex comprises stocks that
have large liquidity and market capitalization. Each stock is given a weight age in the
2ndex equivalent to its market capitalization. At the NSE, the capitalization of N2FTY (fifty
selected stocks) is taken as a base capitalization, with the value set at 1000. Similarly,
BSE Sensitive 2ndex or Sensex comprises 30 selected stocks. The 2ndex value compares
the day's market capitalization vis-à-vis base capitalization and indicates how prices in
general have moved over a period of time. Y

%


 
 Y

Select a broker of your choice and enter into a broker-client agreement and fill in the
client registration form. Place your order with your broker preferably in writing. Get a
trade confirmation slip on the day the trade is executed and ask for the contract note at
the end of the trade date. Y

&

 (
 Y

As per SEB2 (Securities and Exchange Board of 2ndia.) regulations, only registered
members can operate in the stock market. One can trade by executing a deal only
through a registered broker of a recognized Stock Exchange or through a SEB2 -
registered sub-broker. Y

 

Y

A contract note describes the rate, date, time at which the trade was transacted and the
brokerage rate. A contract note issued in the prescribed format establishes a legally
enforceable relationship between the client and the member in respect of trades stated
in the contract note. These are made in duplicate and the member and the client both
keep a copy each. A client should receive the contract note within 24 hours of the
executed trade. Corporate Benefits/Action. Y

ÿ Y

A Split is book entry wherein the face value of the share is altered to create a greater
number of shares outstanding without calling for fresh capital or altering the share
capital account. For example, if a company announces a two-way split, it means that a
share of the face value of Rs 10 is split into two shares of face value of Rs 5 each and a
person holding one share now holds two shares. Y


 Y

As the name suggests, it is a process by which a company can buy back its shares from
shareholders. A company may buy back its shares in various ways: from existing
shareholders on a proportionate basis; through a tender offer from open market;
through a book-building process; from the Stock Exchange; or from odd lot holders. Y

A company cannot buy back through negotiated deals on or off the Stock Exchange,
through spot transactions or through any private arrangement. Y




 


Y

The accounting period for the securities traded on the Exchange. On the NSE, the cycle
begins on Wednesday and ends on the follo wing Tuesday, and on the BSE the cycle
commences on Monday and ends on Friday. At the end of this period, the obligations of
each broker are calculated and the brokers settle their respective obligations as per the
rules, bye-laws and regulations of the Clearing Corporation. 2f a transaction is entered
on the first day of the settlement, the same will be settled on the eighth working day
excluding the day of transaction. However, if the same is done on the last day of the
settlement, it will be settled on the fourth working day excluding the day of transaction. Y

"


 Y

The rolling settlement ensures that each day's trade is settled by keeping a fixed gap of
a specified number of working days between a trade and its settlement. At present, this
gap is five working days after the trading day. The waiting period is uniform for all
trades. 2n a Rolling Settlement, all trades outstanding at end of the day have to be
settled, which means that the buyer has to make payments for securities purchased and
seller has to deliver the securities sold. 2n 2ndia, we have adopted the T+5 settlement
cycle, which means that a transaction entered into on Day 1 has to be settled on the Day
1 + 5 working days, when funds pay in or securities pay out takes place. Y

!  
 
   
"


 + Y

As mentioned earlier, this is the system practiced in developed countries. Pay outs are
quicker than in weekly settlements, and investors will benefit from increased liquidity.
The other benefit of the modified system is that it keeps cash and forward markets
separate. 2n the current system, the trader has five days to square off his transaction
which leads to a high level of speculation as people even without funds tend to "play" the
market. During volatile markets, especially in a bearish market, this often leads to a
payment problem which has dogged the 2ndian stock exchanges for a long time. 2t
provides for a higher degree of safety, and once mechanisms such as futures and stock -
lending become popular, it would re sult in quality speculation and genuine investor
interest.Y

!




 
 
 ÿ  

 (
 Y

As a seller, in order to ensure smooth settlement you should deliver the shares to your
broker immediately after getting the contract note for sale but in any case before the
pay-in day. Similarly, as a buyer, one should pay immediately on the receipt of the
contract note for purchase but in any case before the pay-in day. Y

 
 Y

Short selling is a legitimate trading strategy. 2t i s a sale of a security that the seller does
not own, or any sale that is completed by the delivery of a security borrowed by the
seller. Short sellers take the risk that they will be able to buy the stock at a more
favorable price than the price at which they "sold short." Y

The selling of a security that the seller does not own, or any sale that is completed by
the delivery of a security borrowed by the seller, Short sellers assume that they will be
able to buy the stock at a lower amount than the price at which they sold short. Y

À
 Y

An auction is conducted for those securities that members fail to deliver/short deliver
during pay-in. Three factors primarily give rise to an auction: short deliveries, un-
rectified bad deliveries, and un-rectified company objections Y


ÿ 
 
 
 Y

The buy/sell auction for a capital market security is managed through the auction
market. As opposed to the normal market where trade matching is an on-going process,
the trade matching process for auction starts after the auction period is over. Y

 
 
 
 (  
 

 Y

2f the shares are not bought at the auction i.e. if the shares are not offered for sale, the
Exchange squares up the transaction as per SEB2 guidelines. The transaction is squared
up at the highest price from the relevant trading period till the auction day or at 20 per
cent above the last available Closing price whichever is higher. The pay -in and pay-out
of funds for auction square up is held a long with the pay-out for the relevant auction. Y

M

 Y

SEB2 has formulated uniform guidelines for good and bad delivery of documents. Bad
delivery may pertain to a transfer deed being torn, mutilated, overwritten, defaced, or if
there are spelling mistakes in the name of the company or the transfer. Bad delivery
exists only when shares are transferred physically. 2n "Demat" bad delivery does not
exist. Y

 
,%
 
   Y

"%'-Àc&c  -&%&*%c$%.*À&'% Y
Under the SEB2 Act, 1992, the SEB2 has been empowered to conduct inspection of stock
exchanges. The SEB2 has been inspecting the stock exchanges once every year since
1995-96. During these inspections, a review of the market operations, organizational
structure and administrative control of the exchange is made to ascertain whether: Y

6Y the exchange provides a fair, equitable and growing market to investors

6Y the exchange's organization, systems and practices are in accordance with the
Securities Contracts (Regulation) Act (SC(R) Act), 1956 and rules framed there
under
6Y the exchange has implemented the directions, guidelines and instructions issued
by the SEB2 from time to time
6Y The exchange has complied with the conditions, if any, imposed on it at the time
of renewal/ grant of its recognition under section 4 of the SC(R) Act, 1956.

During the year 1997-98, inspection of stock exchanges was carried out with a special
focus on the measures taken by the stock exchanges for investor's protection. Stock
exchanges were, through inspection reports, advised to effectively follow-up and redress
the investors' complaints against members/listed companies. The stock exchanges were
also advised to expedite the disposal of arbitration cases within four months from the
date of filing. Y

During the earlier years' inspections, common deficiencies observed in the functioning of
the exchanges were delays in post trading settlement, frequent clubbing of settlements,
delay in conducting auctions, inadequate monitoring of payment of m argins by brokers,
non-adherence to Capital Adequacy Norms etc. 2t was observed during the inspections
conducted in 1997 -98 that there has been considerable improvement in most of the
areas, especially in trading, settlement, collection of margins etc. Y

M

 /  Y

Dematerialization in short called as '
 ' is the process by which an investor can get
physical certificates converted into electronic form maintained in an account with the
Depository Participant. The investors can dematerialize only those share certificates that
are already registered in their name and belong to the list of securities admitted for
dematerialization at the depositories. Y

M
ÿ 0 The organization responsible to maintain investor's securities in the

electronic form is called the depository. 2n other words, a depository can therefore be
conceived of as a "Bank" for securities. 2n 2ndia there are two such organizations viz.
NSDL and CDSL. The depository concept is similar to the Banking system with the
exception that banks handle funds whereas a depository handles securities of the
investors. An investor wishing to utilize the services offered by a depository has to open
an account with the depository through Depository Participant. Y

M
ÿ   
ÿ  0 The market intermediary through whom the depository
services can be availed by the investors is called a Depository Participant (DP). As per
SEB2 regulations, DP could be organizations involved in the business of providing
financial services like banks, brokers, custodians and financial institutions. This system
of using the existing distribution channel (mainly constituting DPs) helps the depository
to reach a wide cross section of investors spread across a large geographical area at a
minimum cost. The admission of the DPs involves a detailed evaluation by the depository
of their capability to meet with the strict service standards and a further evaluation and
approval from SEB2. Realizing the potential, all the custodians in 2ndia and a number of
banks, financial insti tutions and major brokers have already joined as DPs to provide
services in a number of cities .Y
À  
 
ÿ 
 

0 Y

Trading in 
 segment completely eliminates the risk of bad deliveries. 2n case of

transfer of electronic shares, you save 0.5% in stamp duty. Avoids the cost of courier/
notarization/ the need for further follow -up with your broker for shares returned for
company objection No loss of certificates in transit and saves substantial expenses
involved in obtaining duplicate c ertificates, when the original share certificates become
mutilated or misplaced. Y

Lower interest charges for loans taken against demat shares as compared to the interest
for loan against physical shares. RB2 has increased the limit of loans availed against
dematerialized securities as collateral to Rs 20 lakh per borrower as against Rs 10 lakh
per borrower in case of loans against physical securities. RB2 has also reduced the
minimum margin to 25% for loans against dematerialized securities, as against 50% for
loans against physical securities. Fill up the account opening form, which is available
with the DP. Sign the DP-client agreement, which defines the rights and duties of the DP
and the person wishing to open the account. Receive your client account num ber (client
2D).Y

This client id along with your DP id gives you a unique identification in the depository
system. Fill up a dematerialization request form, which is available with your DP, Submit
your share certificates along with the form; write ù



 ù on the face
of the certificate before submitting it for demat) Receive credit for the dematerialized
shares into your account within 15 days. Y

 c'"À*#

U www.moneycontrol.com
U www.bseindia.com
U www.nseindia.com
U www.sebi.gov.in
U www.capitalmarket.com
U www.trendwatch.com
U http://en.wikipedia.org/wiki/Primary_market
U http://www.investopedia.com/terms/s/shortselling.asp Y

À

12Y

1 Y The Stock Exchange, Mumbai

Phiroze Jeejeebhoy Towers, Dalal Street, Fort, Mumbai ± 400 001 Y
2 Y The Stock Exchange, Ahmedabad
Kamdhenu Complex, Opp. Sahajanand College, Panjara Pole, Ahmedabad ± 380 015 Y
3 Y Bangalore Stock Exchange Ltd.,
Stock Exchange Tower, 51, 2 Cross, J.C. Road, Bangalore ± 560 027 Y
4 Y Bhubaneshwar Stock Exchange Assn. Ltd.,
217, Budhraja Building, Jharpada Cuttack Road, Bhubaneshwar ± 751006 Y
5 Y The Calcutta Stock Exchange Ltd.,
7, Lyons Range, Calcutta ± 700 001 Y
6 Y Cochin Stock Exchange Ltd.,
Exchange House, 38/1431, Kaloor Raod Extn, Ernakulam, Cochin ± 682035 Kerala Y
7 Y The Delhi Stock Exchange Assn. Ltd. ,
DSE HOUSE, 3/1, Asaf Ali Road, New Delhi - 110002 Y
8 Y The Gauhati Stock Exchange
Saraf Building Annexe, A.T. Road, Gauwahati ± 781001 Y
9 Y The Hyderabad Stock Exchange
Bank Street, Hyderabad ± 500 001 Y
10 Y Jaipur Stock Exchange Ltd.,
Rajasthan Chamber Bhawan, M.2. Road, Jaipur ± 302003 Y
11 Y Kanara Stock Exchange Ltd.,
4th Floor, Rambhavan Complex, Kodialbail, Mangalore ± 575003 Y
 12 Y The Ludhiana Stock Exchange Assn. Ltd.,
Lajpat Rai Market, Clock Tower, Ludhiana ± 141 008Y
13 Y Madras Stock Exchange Ltd.,
Exchange Building, Post Box No 183, 11, Second line Beach, Madras ± 600001 Y
14 Y Madhya Pradesh Exchange
67, Bada Sarafa, 2ndore ± 452 002 Y
15 Y The Magadh Stock Exchange Ltd.,
Bihar 2ndustries Assn. Premises, Sinha Library Road, Patna ± 800 001 Y
16 Y Pune Stock Exchange ltd.,
PMT Commercial Building, Deccan Gymkhana, Pune ± 411 004 Y
17 Y Saurashtra Kutch Stock Exchange Ltd.,
4, Swaminarayan, Gurukul Bldg, Dhebarbhai Rd, Rajkot ± 380 002 Y
18 Y The Uttar Pradesh Exchange Ass Ltd.,
Padam Towers, 14/113, Civil Lines, Kanpur ± 208 001 Y
19 Y The Vadodara Stock Exchange ltd.,
Paradise Complex, Opp. Commercial College, Tilak Rd, Sayajiganj, Baroda ± 390 005 Y
20Y The Coimbatore Stock Exchange Ltd.,
Avanashi Rd, Coimbatore Y
21Y The Meerut Stock Exchange Ltd., Y
22Y
OTC Exchange of 2ndia
92, Maker Towers 'F', Cuffe Parade, Mumbai ± 400 005 Y
23 Y National Stock Exchange
Trade World, Kamala Mills Compound, Lower Parel, Mumbai 400 013 Y

YYY

Y
M    
Assistant Professor & Kidevices Chair

  

  

  
 

 !
 
Amreli-365 601 GJY